Sep 12 2005
In a response to the final stage of the Dti’s consultation on Company Law Reform today, Deloitte warned that some of the proposals could complicate the regulatory regime and result in unintended consequences. Changes to the penalties for directors who approve defective accounts caused much concern.

Martin Scicluna, Chairman of Deloitte in the UK, commented:
“While many of the proposals outlined are designed to improve modern business practice and enhance a long-term investment culture, there is danger that a small portion of the proposals will overshadow the proposed benefits.

“We believe the proposed changes to the penalties for directors who approve defective accounts, from fines to a potential seven year jail sentence, is excessive and unnecessary.

“There has been no evidence reported by the Financial Reporting Review Panel (FRRP) of systematic weaknesses that need to be addressed. These proposals would make dealings between the FRRP, companies and auditors much more legalistic and directors would become more reluctant to make voluntary revisions of their accounts.

“Imposing more severe penalties and disproportionate sanctions will increase compliance costs for all companies and their shareholders and damage the competitiveness of UK companies and capital markets. It will also send out the wrong message to entrepreneurs that incorporating a small business could result in going to jail for a very long period. We believe further consideration of these issues is still required.”

The response also warned against attempts to toughen up the laws on accounting records to replicate the approach pioneered by the US Sarbanes-Oxley Act. Disproportionate sanctions would also lead to the application of detailed rules rather than the principles-based financial reporting regime in the UK – a global leader in regulation and assisting its capital markets – would have significant cost implications.

View Deloitte’s response to the Company Law Reform as well as the Appendix to the response.

http://www.deloitte.com/dtt/cda/doc/content/UK_Audit_CompanyLawReform_Full.pdf

and

http://www.deloitte.com/dtt/cda/doc/content/UK_Audit_CompanyLawReform_Appendix.pdf